Precious metals ETFs surged last week after European policymakers made an apparent breakthrough on crisis measures. Gold rallied nearly 3% and silver surged over 4% on Friday after a breakthrough agreement between Eurozone leaders to allow the direct funding of banking sector bailouts and to remove European governments preferred status on repayment of Spanish bank debt.

Gold prices were lower Monday to trade under $1,600 an ounce. [Gold ETF Sees Quarterly Outflow]

Germany appears to be finally bowing to concerted pressure to ease the conditions under which help will be provided to troubled Eurozone nations and their ailing banking systems.

Eurozone leaders have agreed to allow the EFSF/ESM to directly recapitalize troubled banks once a single supervisory institution is formed. The seniority of Eurozone government claims on Spanish bank loans has also been relinquished, reducing private investors’ disincentives to buying Spanish government bonds.

However, few details on the timing and the mechanics for providing bank and sovereign debt funding were provided. Therefore, while the buoyant market mood may persist in the near-term, follow-through on implementation will be critical for positive momentum to be maintained.

Central bank buying

Gold buying by emerging market central banks remained strong in May. Russia led the way, with its central bank accumulating another 15.5 metric tons in May bringing its reserves past the 900 tonne level.

The central banks of Turkey, the Ukraine and Kasakhstan also purchased bullion, adding 5.7 tonnes, 2.1 tonnes and 1.8 tonnes respectively.

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